ECON 202 - CH5 Study Questions

B) transfer payment.

A cash payment made by the government to people who do not supply goods, services or labor in exchange for the payment is a(n) A) budget deficit. B) transfer payment. C) "in kind" payment. D) dividend payment.

A) promissory note

A corporate bond is a ________ issued by a corporation when it borrows money. A) promissory note B) certificate of deposit C) private stock D) derivative security

D) deflation.

A decrease in the overall price level is known as A) recession. B) inflation. C) economic growth. D) deflation.

D) prolonged and deep recession.

A depression is a A) recession combined with hyperinflation. B) period of decreasing unemployment and decreasing price levels. C) period of economic growth which is offset by stagflation. D) prolonged and deep recession.

B) dissaving.

A household that spends more than it receives in income during a given period is A) saving. B) dissaving. C) running a deficit. D) receiving transfer payments.

A) recession.

A period during which aggregate output falls is known as a(n) A) recession. B) inflation. C) hyperinflation. D) expansion.

D) surplus of labor and wages will fall.

According to Classical economists, if the quantity of labor supplied exceeds the quantity demanded, there is a A) surplus of labor and wages will rise. B) shortage of labor and wages will fall. C) shortage of labor and wages will rise. D) surplus of labor and wages will fall.

C) Classical

According to ________ economists, the economy is self-correcting. A) Keynesian B) Marxist C) Classical D) command system

C) Classical

According to ________ models, the level of employment is determined primarily by prices and wages. A) Keynesian B) Marxist C) Classical D) command system

A) Keynes

According to ________, the level of employment is determined by the level of aggregate demand for goods and services. A) Keynes B) Marx C) the Classicals D) supply-side economists

C) wage; fall; supply of labor

According to the Classical model, unemployment could not persist because ________ would ________ to eliminate the excess ________. A) wages; rise; supply of labor B) prices; rise; supply of goods C) wage; fall; supply of labor D) prices; fall; demand for goods

C) inflation.

An increase in the overall price level is known as A) recession. B) economic growth. C) inflation. D) deflation.

C) capital gain.

An increase in the value of an asset over the price initially paid for it is a A) price floor. B) budget surplus. C) capital gain. D) neutral profit.

B) The $150,000 increase in the value of the stock represents an unrealized capital gain.

Celine purchased 5000 shares of stock for $500,000. A year later the stock is valued at $650,000. Instead of selling the stock, Celine held onto it for another year. Which of the following is true? A) The $150,000 increase in the value of the stock represents a dividend. B) The $150,000 increase in the value of the stock represents an unrealized capital gain. C) To determine the capital gain, it is first necessary to know the normal rate of return on capital. D) The total capital gain will be at least $150,000.

C) dividends.

Corporate profits distributed among shareholders are called A) retained earnings. B) private bonds. C) dividends. D) Treasury bills.

D) not currently working but are actively looking for work.

Economists define the unemployed as individuals who are A) working less than their desired amount of time. B) not currently working. C) working but looking for a different job. D) not currently working but are actively looking for work.

A) Eddie earned a capital gain of $500.

Eddie purchased an autographed Kobe Bryant basketball when he was 17 years old for a total cost of $200 and then sold the basketball 4 years later for $700. Due to these transactions A) Eddie earned a capital gain of $500. B) Eddie earned a capital gain of $700. C) Eddie earned a dividend of $500. D) Eddie earned a dividend of $900.

A) taxes; expenditures

Fiscal policies are government policies regarding ________ and ________. A) taxes; expenditures B) income; saving C) money supply; money demand D) revenues; earnings

A) money market.

Funds are demanded and supplied in the A) money market. B) goods and services market. C) labor market. D) transfer market.

B) very rapid increase in the overall price level.

Hyperinflation refers to a(n) A) increase in both price level and output. B) very rapid increase in the overall price level. C) very rapid decrease in the overall price level. D) decrease in unemployment which is accompanied by a rapid increase in wages.

B) 10%.

If 5 million workers are unemployed and 45 million workers are employed, then the unemployment rate is A) 5%. B) 10%. C) 11.1%. D) 40%.

A) fiscal policy.

If Congress decreases government spending, it is using A) fiscal policy. B) supply-side policy. C) monetary policy. D) incomes policy.

C) capital gain of $120.

If Raoul purchases a share of stock for $40 and four years later sells it for $160, he will realize a A) dividend of $120. B) dividend of $200. C) capital gain of $120. D) capital gain of $160.

C) capital gain of $45.

If Teresa purchases a share of stock for $15 and three years later sells it for $60, she will realize a A) dividend of $45. B) dividend of $60. C) capital gain of $45. D) capital gain of $60.

A) contraction.

If output is falling and unemployment is rising, the economy must be in a(n) A) contraction. B) expansion. C) depression. D) hyperinflationary period.

C) monetary policy.

If the central bank increases the money supply, it is conducting A) fiscal policy. B) supply-side policy. C) monetary policy. D) incomes policy.

D) 98%.

If the labor force is 200 million and 4 million are unemployed then the employment rate is A) 4%. B) 6%. C) 96%. D) 98%.

D) 5%.

If the labor force is 400 and employment is 380, then the unemployment rate is A) 90%. B) 38%. C) 20%. D) 5%.

D) recession; expansion

In a business cycle, a peak occurs before the beginning of a(n) ________ and a trough occurs before the beginning of a(n) ________. A) expansion; recession B) depression; expansion C) trough; peak D) recession; expansion

B) a trough.

In a business cycle, the end of a recession is represented by A) a peak. B) a trough. C) a depression. D) an inflation.

A) a peak.

In a business cycle, the end of an expansion is represented by A) a peak. B) a trough. C) a depression. D) an inflation.

C) firms; households

In the circular flow diagram, ________ demand labor and ________ demand goods and services. A) firms; firms B) households; firms C) firms; households D) households; households

C) demand; supply

In the circular flow diagram, households ________ goods and services and ________ labor. A) demand; demand B) supply; demand C) demand; supply D) supply; supply

D) firms; households

In the circular flow diagram, the different payments made by ________ to ________ include wages, rent and profits. A) households; firms B) firms; the government C) the government; households D) firms; households

B) households

In the goods-and-services market, ________ only demand(s). A) firms B) households C) the rest of the world D) the Federal Reserve

C) the goods and services market

In which basic market would MP3 players be traded? A) the labor market B) the money market C) the goods and services market D) the capital market

A) increase; price level

Inflation refers to a(n) ________ in the overall ________. A) increase; price level B) increase; unemployment rate C) decrease; price level D) decrease; unemployment rate

C) recession; output

It has become conventional to classify an economic downturn as a ________ when aggregate ________ declines for two consecutive quarters. A) depression; supply B) deflation; spending C) recession; output D) trough; demand

A) Javier earned a capital gain of $4,000.

Javier purchased a 1972 Dodge Charger in 2009 for $17,000 and a year later he sold it for $21,000. Due to these transactions A) Javier earned a capital gain of $4,000. B) Javier earned a capital gain of $21,000. C) Javier earned a dividend of $17,000. D) Javier earned a dividend of $21,000.

B) increase; decrease

Keynes argued that the government should ________ taxes and/or ________ government spending to bring the economy out of an inflationary period. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

C) decrease; increase

Keynes believed that the government should ________ taxes and/or ________ government spending to get the economy out of a slump. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

A) high; high

Stagflation occurs when the economy's inflation rate is ________ and the unemployment rate is ________. A) high; high B) high; low C) low; high D) low; low

C) Keynes' theories.

Starting with the Great Depression, macroeconomic policies became more influenced by A) Marxist theories. B) Classical Theories. C) Keynes' theories. D) supply-side theories.

D) decreasing government spending.

Suppose the economy suffers a high rate of inflation. According to Keynesian economists, the government should decrease employment by A) increasing money supply. B) balancing the budget. C) not doing anything. D) decreasing government spending.

C) Federal Reserve

The ________ affecting the supply of money is known as monetary policy. A) Congress B) Treasury Department C) Federal Reserve D) Commerce Department

B) Federal Reserve

The ________ regulates the amount of money in circulation. A) Congress B) Federal Reserve C) Treasury Department D) Office of the Comptroller of the Currency

C) aggregate behavior.

The behavior of all households and firms together is known as A) synchronized behavior. B) synergy behavior. C) aggregate behavior. D) conglomerate behavior.

D) sticky price.

The demand for steel has decreased in July without any change in supply. Six months later there still has been no change in steel prices. This is an example of a A) price floor. B) price control. C) macroeconomic price. D) sticky price.

A) peak; trough

The economy goes through a recession between a ________ and a ________. A) peak; trough B) bust; boom C) trough; peak D) stagflation; deflation

C) trough; peak

The economy goes through an expansion between a ________ and a ________. A) boom; bust B) peak; recession C) trough; peak D) deflation; stagflation

A) employed/labor force.

The employment rate equals A) employed/labor force. B) unemployed/employed. C) (employed - unemployed)/labor force. D) labor force/population.

B) (labor force - unemployed)/labor force.

The employment rate equals A) labor force/population. B) (labor force - unemployed)/labor force. C) (employed - unemployed)/labor force. D) unemployed/employed.

D) a fiscal policy.

The government wants to discourage consumer spending through raising income taxes. This is an example of A) an incomes policy. B) a monetary policy. C) a supply-side policy. D) a fiscal policy.

D) circular flow diagram.

The income received and payments made by each sector of the economy are represented by a(n) A) aggregate demand-aggregate supply diagram. B) income-production diagram. C) income flow diagram. D) circular flow diagram.

C) income; spending

The major lesson of the circular flow diagram is that total ________ must equal total ________. A) surplus; shortage B) wages; income C) income; spending D) spending; saving

B) price system.

The mechanism that normally coordinates what goes on in an economy is the A) stock market. B) price system. C) government. D) Federal Reserve.

A) peak; trough

The period in the business cycle from a ________ to a ________ is called a recession. A) peak; trough B) trough; peak C) peak; new peak D) trough; new trough

B) trough; peak

The period in the business cycle from a ________ to a ________ is called an expansion. A) peak; trough B) trough; peak C) peak; new peak D) trough; new trough

C) fine-tuning.

The phrase used by Walter Heller to refer to the government's role in regulating inflation and unemployment is A) market clearing. B) price adaptation. C) fine-tuning. D) stagflation.

C) profits; its shareholders

The portion of a corporation's ________ that a firm pays out each period to ________ is a capital gain. A) revenues; the government B) profits; its board of directors C) profits; its shareholders D) taxes; the government

D) dividend.

The portion of a corporation's profits that the firm pays out each period to its shareholders is a A) retained earning. B) stock option. C) capital gain. D) dividend.

B) business cycle.

The short-term ups and downs in the level of economic activity is known as a(n) A) recovery model. B) business cycle. C) unemployment trend. D) circular flow model.

D) business firms and the rest of the world.

The suppliers in the goods-and-services market are A) households and business firms. B) households, the government, and the rest of the world. C) the government and business firms. D) business firms and the rest of the world.

A) promissory notes

Treasury bonds are ________ issued by the federal government when it borrows money. A) promissory notes B) certificates of deposit C) private stocks D) derivative securities

False

True/False: A capital gain is the increase in value of an asset above its depreciated cost.

True

True/False: A contraction is associated with a negative rate of growth of the economy.

False

True/False: A corporate bond is a promissory note issued by a firm when it sells stock.

False

True/False: A recession is usually associated with high inflation.

False

True/False: A transfer payment is the revenue one receives when filing for a tax refund.

True

True/False: All business cycles are asymmetric and the length of an expansion is not necessarily the same as the length of a recession.

True

True/False: An expansion is usually associated with rising employment.

True

True/False: Dividends are paid by firms to shareholders.

False

True/False: Expansionary fiscal policy includes raising taxes.

True

True/False: Fiscal policy includes changing the level of household taxes.

True

True/False: Fiscal policy refers to government policies concerning taxing and spending.

False

True/False: In the circular flow diagram everyone's expenditure is someone else's cost.

False

True/False: Microeconomic behavior is the sum of all the microeconomic decisions made by individual households and firms.

False

True/False: Microeconomics is concerned with inflation or deflation, output growth and unemployment.

True

True/False: Microeconomics is concerned with the market price and equilibrium quantity of each good or service.

False

True/False: Stagflation occurs when there is a decline in the unemployment rate.

False

True/False: The employment rate is the number of people employed divided by number of people in the population.

False

True/False: The following is a correct order in a business cycle: trough, recession, peak, expansion.

B) recession; expansion

Unemployment generally rises during ________ and falls during ________. A) inflation; deflation B) recession; expansion C) peaks; troughs D) booms; busts

C) supply of labor.

Unemployment implies that in the labor market there is an excess A) supply of available jobs. B) demand for labor. C) supply of labor. D) demand for increased wages.

C) understand why economies grow.

We can use macroeconomic analysis to A) study the choices made by households. B) understand marginal changes in the macroeconomy. C) understand why economies grow. D) learn how to balance a checkbook.

C) transfer payments.

Welfare payments are an example of A) a tax. B) wages. C) transfer payments. D) interest payments.

B) fiscal policy.

When the government changes taxes and spending, it is implementing A) supply-side policy. B) fiscal policy. C) incomes policy. D) monetary policy.

C) Bondholders earn dividends but

Which of the following is NOT a correct statement? A) Companies can issue shares and issue bonds. B) The government issues bonds but does not issue shares. C) Bondholders earn dividends but shareholders don't. D) Shareholders earn dividends but bondholders don't.

C) Classical economists

________ defended the economic concept of "market clearing." A) Demand-side economists B) Fine-tuning economists C) Classical economists D) Keynesian economists

A) An increase

________ in the value of an asset over the price initially paid for it is a capital gain. A) An increase B) A decrease C) No change D) The depreciation

D) the nation's economy as a whole.

Macroeconomics is best described as the study of A) the relationship between inflation and wage inequality. B) very large issues. C) the choices made by individual households, firms, and governments. D) the nation's economy as a whole.

C) studies the behavior of the economy as a whole.

Macroeconomics: A) studies the behavior of individual consumers, firms and markets. B) involves the interaction between different countries in specific markets. C) studies the behavior of the economy as a whole. D) deals with both individual decisions and the sum of those individual decisions.

D) individual prices.

Microeconomics is concerned with A) price level stability. B) economic growth. C) unemployment. D) individual prices.

D) quantity of money.

Monetary policies are designed to affect the A) size of income tax brackets. B) volume of tax revenues. C) denominations of currency. D) quantity of money.

C) adjust both upward and downward.

One assumption used by Classical economists is that wages A) adjust upward but not downward. B) adjust downward but not upward. C) adjust both upward and downward. D) are inflexible.

D) stagflation.

Rapid increases in prices during periods of recession is known as A) pricegouging. B) stagnation. C) depression. D) stagflation.

D) expansion

Related to the Economics in Practice on p. 417: F. Scott Fitzgerald's The Great Gatsby is set in the 1920s. During the 1920s, the U.S. economy was primarily in which phase of the business cycle? A) peak B) recession C) trough D) expansion

B) the Great Depression.

Related to the Economics in Practice on p. 417: John Steinbeck's The Grapes of Wrath is set in the early 1930s, a period in U.S. history most noted for A) rapid economic expansion. B) the Great Depression. C) World War I. D) hyperinflation.

D) recession.

Slump, downturn and contraction are all words for a(n) A) hyperinflation. B) stagflation. C) expansion. D) recession.